What is meant by the principle of diminishing marginal utility and how does it lead to a consumer equilibrium?

Question

What is meant by the principle of diminishing marginal utility and how does it lead to a consumer equilibrium and the law of demand?

Answer 1

utility is what economists use to 'measure' (more like estimate) the benefit or satisfaction a person receives from taking part in a an economic activity (consumption or saving).

marginal utility means extra utility (satisfaction) gained from an additional unit of consumption or saving. diminishing utility refers to the observed principle that additional consumption / saving does not provide the same level of satisfaction as the previous. for example, if you consume your favourite food you get a large amount of satisfaction. if you do it twice it will be less satisfying.... if you do it 100 times the amount of extra satisfaction you will get from the 100th compared to the 99th will be quite small.

another way of expressing this is to say that consumers value scarce things more than abundant things (in general), as there is a greater marginal utility associated with consuming it. the law of demand states that consumers will be willing to pay more for something (higher prices) if it is more scarce, as the perceived marginal utility will be higher.